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Stacking low carbon policies on the renewable fuels standard: Economic and greenhouse gas implications

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  • Huang, Haixiao
  • Khanna, Madhu
  • Önal, Hayri
  • Chen, Xiaoguang

Abstract

This paper examines the economic and GHG implications of stacking a low carbon fuel standard (LCFS) with and without a carbon price policy on the Renewable Fuel Standard (RFS). We compare the performance of various policy combinations for food and fuel prices, fuel mix and fuel consumption. We also analyze the economic costs and benefits of alternative policy combinations and their distributional effects for consumers and producers in the transportation and agricultural sector in the US. Using a dynamic, multi-market, partial equilibrium model of the transportation and agricultural sectors, we find that combining the RFS with an LCFS policy leads to a reduction in first generation biofuels and an increase in second generation biofuels compared to the RFS alone. This policy combination also achieves greater reduction in GHG emissions even after considering offsetting market mediated effects. Imposition of a carbon price with the RFS and LCFS policy primarily induces fuel conservation and achieves larger GHG emissions reduction compared to the other policy scenarios. All these policy combinations lead to higher net economic benefits for the transportation and agricultural sectors relative to the no policy baseline because they improve the terms of trade for US.

Suggested Citation

  • Huang, Haixiao & Khanna, Madhu & Önal, Hayri & Chen, Xiaoguang, 2013. "Stacking low carbon policies on the renewable fuels standard: Economic and greenhouse gas implications," Energy Policy, Elsevier, vol. 56(C), pages 5-15.
  • Handle: RePEc:eee:enepol:v:56:y:2013:i:c:p:5-15
    DOI: 10.1016/j.enpol.2012.06.002
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    References listed on IDEAS

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    1. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, vol. 95(4), pages 1276-1289, September.
    2. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2009. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 106-146, February.
    3. Xiaoguang Chen & Haixiao Huang & Madhu Khanna & Hayri Önal, 2011. "Meeting the Mandate for Biofuels: Implications for Land Use, Food, and Fuel Prices," NBER Chapters,in: The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies, pages 223-267 National Bureau of Economic Research, Inc.
    4. Searchinger, Timothy & Heimlich, Ralph & Houghton, R. A. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Tokgoz, Simla & Hayes, Dermot J. & Yu, Hun-Hsiang, 2008. "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change," Staff General Research Papers Archive 12881, Iowa State University, Department of Economics.
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